Yahoo: Buy The Stock For The Assets, Analyst Advises

Yahoo (YHOO) continues to have major fundamental problems. But the value of the company's Asian assets, combined with its cash position, could provide investors with a "compelling risk-return opportunity," according to Pacific Crest analyst Steve Weinstein, who late Monday raised his rating on the stock to Outperform from Sector Perform.

"While buying YHOO shares on valuation has not worked in the past, we believe recent moves to unlock value in Japan change the dynamic," he writes in a research note.

Weinstein thinks the company could be close to taking steps to monetizing its stake in Yahoo Japan. He notes that management on its most recent earnings call indicated it is seeking a way to tax efficiently dispose of its stake. Weinstein notes that Yahoo's holdings in its Japan-based affiliate is worth about $5.38 a share. Assuming a 35% tax hit and a 10% liquidity discount, we think YHOO holders should get at least $2.96 a share form a sale of the Yahoo Japan holdings.

Meanwhile, he notes that the company's holdings in the public piece of Alibaba is worth $2.18 a share to Yahoo, and he estimates the company's stake in parent Alibaba Group to be worth at least another $2.78 a share, and potential a lot more. And he says that excluding acquisitions, the company is piling up cash at the rate of about 50 cents a share per year; he puts current cash at $2.20 a share. Add it up, and you find the current value of Yahoo's core business at just $3.26 a share, or $5.68 based on a 45% discount to the Yahoo Japan shares.

His price target on Yahoo shares is $21. The stock this morning is up 30 cents, or 1.9%, to $16.42.